Note L- Stock-based Compensation

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

NOTE L—STOCK-BASED COMPENSATION

The Company's Board of Directors has granted stock-based incentive awards to certain employees and directors pursuant to a long-term incentive plan which was approved by the Company's stockholders in May 2005 and in May 2015. Employees have been awarded non-vested restricted stock, non-vested stock units with performance conditions, and non-vested stock units with market conditions. The restrictions on the non-vested restricted stock awards lapse at the end of a specified service period, which is typically three years from the grant date. The non-vested stock units will be converted into a number of ATSG common shares depending on the satisfaction of the performance conditions or market conditions at the end of a specified service period, which is typically three years from the grant date. The performance condition awards will be converted into a number of ATSG common shares based on the Company's average return on invested capital during the service period. Similarly, the market condition awards will be converted into a number of common shares depending on the appreciation of ATSG common shares compared to the Nasdaq Transportation Index. Directors have been granted time-based awards that vest after a period of twelve months. Under each of the stock-based incentive awards, the restrictions may lapse sooner than the stated settlement period upon (1) the participant's death or disability, (2) an employee participant's qualification for retirement or (3) a change in control, in the case of an employee participant under the 2015 long-term incentive plan, or a business combination, in the case of a director participant under the 2005 or 2015 long-term incentive plan. The Company expects to settle all of the stock unit awards by issuing new ATSG common shares. The table below summarizes award activity for the three months ended March 31, 2024 and 2023:

	March 31, 2024					March 31, 2023
				Weighted					Weighted
				average					average
	Number of			grant-date		Number of			grant-date
	Awards			fair value		Awards			fair value
Outstanding at beginning of period		1,066,784		$	20.19		929,205		$	21.83
Granted		926,984			12.37		—			—
Converted		(71,359	)		25.71		(186,828	)		20.87
Expired		—			—		—			—
Forfeited		(9,600	)		26.90		(600	)		36.93
Outstanding at end of period		1,912,809		$	16.16		741,777		$	22.04
Vested		496,838		$	10.80		298,928		$	8.02

The average grant-date fair value of each performance condition award, non-vested restricted stock award and time-based award granted by the Company in 2024 was $12.19, the fair value of the Company’s stock on the date of grant. The average grant-date fair value of each market condition award granted in 2024 was $12.95. The market condition awards granted in 2024 were valued using a Monte Carlo simulation technique based on daily stock prices over three years and using the following variables:

	2024
Risk-free interest rate	4.4	%
Volatility	43.0	%

For the three months ended March 31, 2024 and 2023, the Company recorded expense of $2.6 million and $1.4 million respectively, for stock-based incentive awards. At March 31, 2024, there was $18.7 million of unrecognized expense related to the stock-based incentive awards that is expected to be recognized over a weighted-average period of 1.8 years. As of March 31, 2024, none of the awards were convertible, 496,838 units of the directors' time-based awards had vested and none of the outstanding shares of the restricted stock had vested. These awards could result in the issuance of a maximum number of 2,449,584 additional outstanding shares of ATSG's common stock depending on service, performance and market results through December 31, 2026.